Buy a House, Lose Your Job?

The surprising connection between homeownership and unemployment.

Governments around the world encourage homeownership in the belief that it fosters prosperity. But unemployment statistics tell a different story. Higher rates of homeownership seem to correlate with higher rates of unemployment. In Switzerland, where about one-fourth of citizens own their homes, unemployment is only 2.9 percent. In Spain, where homeownership is three times as common, unemployment is a staggering 18.1 percent. Portugal's homeownership is midway between Switzerland's and Spain's, and unemployment is a low-to-middling 4.1 percent.

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These numbers come from a recent paper packed with evidence that homeownership and unemployment generally move in tandem. The author, Professor Andrew Oswald of the University of Warwick, points to similar patterns all over the industrialized world. The patterns show up in comparisons between countries (such as Spain and Switzerland) and in comparisons between regions within countries (such as East Anglia and Yorkshire, or Iowa and Nevada), and they show up whether you look at snapshots in time or at trends that span decades.

The data suggest that, on average, a 10-percent increase in the rate of owner occupation is associated with a 2-percent increase in the rate of unemployment. If that's right, it accounts for a substantial fraction of the world's joblessness. What's going on here? Does homeownership cause unemployment? Does unemployment cause homeownership? Oswald endorses the first explanation--homeownership causes unemployment by tying people down geographically. The jobless homeowner looks for jobs within commuting distance of his home. The jobless renter is willing to move to where the jobs are.

That theory is testable, because it predicts that homeowners suffer longer periods of unemployment, as opposed to more frequent periods of unemployment. And in fact, Oswald's theory passes at least one version of that test: As homeownership has risen over the past few decades, there has been an increase in time spent unemployed but little change in the frequency of job loss.

Alternative theories are possible. Maybe the causality goes backward: Unemployment causes high rates of homeownership. My irreverent colleague Mark Bils points out that if you lose your job, you'll be spending a lot of time at home, and you'll want to buy a nice house. A more plausible explanation is that when jobs dry up, renters move out, so that only homeowners remain. The other side of that coin is that booming areas tend to draw a lot of newcomers who want to rent for a while.

But when two things occur in tandem, it isn't always right to ask which is the cause and which the effect. After all, mistletoe and eggnog tend to appear in the same month, but neither causes the other. Instead, they're brought on simultaneously by the Christmas season. Perhaps it's the same with unemployment and homeownership. But then what plays the role of Christmas, the background force that causes both phenomena? The most obvious candidates are age and wealth, either of which can increase the odds of both homeownership and long-term unemployment (the young and the poor scramble harder for jobs).

My cynical colleague Alan Stockman suggests an alternative candidate, namely, the regulatory climate. He points out that where regulators run amok, they tend to disrupt the rental market and the job market simultaneously. Consider the housing market in New York City, where rental apartments are outrageously expensive. That's largely because New York real-estate laws make it nearly impossible to evict a bad tenant, so landlords are skittish about leasing to strangers. At the same time, labor laws make it hard to fire a bad employee, so employers are conservative in their hiring.

It's also possible that the numbers themselves are wrong, because of some hidden bias in the way they're collected. Maybe when you're counting the unemployed, it's easy to overlook a transient and hard to overlook a homeowner. So you can tell a lot of different stories to explain Oswald's numbers. But for the sake of discussion, let me go back to the first (and, I think, most interesting) story: Homeowners stay unemployed longer because homeowners are less mobile. If that story is true, what is its moral?

O swald speculates that mass unemployment exists in the world today because of the rise in homeownership and the decline in private renting--trends that are, in turn, the results of long-running attempts by most Western governments to raise the degree of homeownership (largely through subsidies). Where those attempts have been most successful, the efficiency of labor markets has declined most dramatically.

You could interpret that as a story about well-meaning do-gooders who hurt the very people they're trying to help, but such an interpretation would be hard to defend. Surely home buyers are well aware that they're sacrificing mobility. That's a voluntary sacrifice, and so (in the judgment of those who choose to buy) it must be more than compensated for by the benefits of ownership. In other words, high unemployment might be the price we pay for owner occupancy, but apparently owner-occupants are convinced that it's a price worth paying.

That analysis is guided by an economist's faith in the maxim that people are generally pretty good at looking out for their own interests. The companion maxim is that people often make no attempt at all to look out for the interests of others. So if we really want to pull every possible moral out of our story, we should think about the other people whose interests are at stake when you decide to buy a house. In other words, we should think about your children.

Residential stability is extremely important for children. If your family moves during your school years (ages 6-15), your chance of graduating high school falls by 16 percent, the chance that you'll be "economically inactive" (out of school and out of work) at age 24 rises by 10 percent--and, if you are female, your chance of getting through your teens without an out-of-wedlock birth falls by 6 percent. (I learned this from the book SucceedingGenerations, by the economists Robert Haveman and Barbara Wolfe.) Like Oswald's numbers on housing and unemployment, these numbers might allow a variety of explanations--like "families that move are more likely to be poor, and that's why their kids don't do as well." But in fact Haveman and Wolfe's statistical analysis is designed to rule out this and similar alternative theories, leaving us to conclude that the moves themselves are harmful.

Perhaps when parents move, they carefully weigh the damage to their children against competing benefits and act in the interests of the entire family. Or perhaps when parents move, they selfishly put their own interests ahead of their children's. In the latter case, a government that cares about children would want to discourage household moves (say through subsidies to homeownership), even at the cost of higher unemployment.